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Andrew T. Gillies is Director of Communications at the Center for Audit Quality, an affiliate of the American Institute of CPAs, in Washington, DC. Based in Washington since 2002, he has also worked in editorial and communications roles at the Investment Company Institute, the World Bank, Forbes, and Vault.com. His policy-themed writing has focused on aerospace and defense, energy and environment, transportation, and financial services.

Monday, February 18, 2002

Value Investing, Sort Of

Relative value managers, such as Linell McCurry of Walnut Asset Management, keep their value bias, but they pick stocks that would make a Ben Graham purist blush.
Conjure up a typical value stock, and Biogen doesn't exactly leap to mind. Shares of the biotechnology concern sell for 8 times trailing revenues and 29 times trailing earnings. Analysts reporting to Thomson Financial/IBES expect Biogen's profits to increase 18% (annualized) over the next three to five years. This doesn't look like a stock shunned by Wall Street.

But consider Biogen (nasdaq: BGEN - news - people ) relative to its peers. The biotechnology stocks with market capitalizations exceeding $1 billion in the Market Guide database sell for an average of 74 times latest-12-month earnings. Limit the universe to biotech stocks bigger than $5 billion in capitalization, and the average multiple is still a rich 67. Alongside competitors, Biogen looks cheap.

Finding such "bargains" among high-multiple stocks is the domain of the relative value investor. "There are whole areas of the market that people will miss if they're looking for just low price-to-book multiples and low P/Es," says Linell McCurry, portfolio manager with Walnut Asset Management, a Philadelphia firm managing $700 million.

Full story (reg. required) at Forbes.com